A top Australian fund facing questions from ASIC has given back around $75 million to investors

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The Regal Long Short Australian Equity Fund is about to pay millions of dollars out to investors following a rush of redemptions in the wake of an investigation by ASIC, the corporate watchdog, into a share trade two years ago.

The award-winning fund, now valued at around $100 million, lost between $70 million and $75 million in redemptions when BT pulled the fund from its wrap platform some weeks ago.

Two directors of the fund recently resigned after the ASIC investigation became public and wrap platforms, accessed by thousands of self managed super funds, have stopped access to the fund.

Regal aims to outperform the S&P/ASX 300 Accumulation Index net of fees over a rolling five years.

“Because there was a pretty sizable redemption we thought the fairest thing would be to distribute that income now including the investors who were redeeming,” Stephen Baldwin, chief operating officer at Regal, told Business Insider.

“It just means that all of the investors share equally in the income the trust has generated.”

The chief investment officer, Philip King, the brother of the fund founder Andrew King, is being examined by ASIC over a trading event in 2013.

Regal, in a letter to unit holders seen by Business Insider, said:

“Our Chief Investment Officer is cooperating fully with ASIC’s investigation. He strongly denies any laws or regulations have been breached and believes he will be cleared of any wrongdoing. He continues to act as Portfolio Manager and to make investments on behalf of the Fund. Regal takes its responsibility to act in its clients’ best interests very seriously.”

The two King brothers are the remaining directors after David Lees and Chuak Chan, who represent Westpac’s 30% ownership of Regal, resigned.

In a note to unit holders earlier this month, Baldwin, the COO, explained:

“As premised in our previous update, the Australian Securities and Investments Commission (ASIC) issued a notice to our Chief Investment Officer, informing him of a civil hearing under the Corporations Act.

Given the confidentiality of the ASIC hearing, the fact that its outcome would not become known for some time, the level of uncertainty around the outcome of the hearing and that Fund Managers do not normally disclose a notice of hearing until the results of the hearing are known, Regal’s executive directors believed it was both prudent and responsible to obtain senior counsel’s (legal) opinion on the matter.

There was a difference of opinion on the board as to whether immediate notification of the notice of hearing was warranted or whether further information and advice should be obtained. As a consequence Mr Chan and Mr Lees resigned from the Board.”

The redemptions via the BT investment platform followed news of the ASIC investigation.

The Regal fund has told unit holders the interim distribution is needed to ensure an “equitable distribution” of income.

However, Perpetual Trust Services, as the responsible entity, says the redemption payments will be delayed.

The special payment for the distribution is due to be paid tomorrow.

Its size is not yet known. Perpetual said: “We do not publicly disclose the amount of the special distribution – this is between the Responsible Entity and the unit holders.” The redemptions will then be paid soon after.

“Because there was a significant reduction in the investor base, the fairest thing to do was to make sure all investors share in the income so no-one gets an adverse tax outcome,” Stephen Baldwin told Business Insider. “We continue to manage the fund in the interests of the remaining investors. We (management) all remain investors in the fund here and continue to be positive about the outlook of the fund.”

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